Expensive ESG products turn off HK investors

Asset Class in Focus

Sustainable investment products come with higher fees than traditional products, according to a UBS survey of Hong Kong investors.

UBS Wealth to increase sustainable products
Mario Knoepfel, UBS Wealth Management

High fees are a key reason why Hong Kong investors have not embraced sustainable-themed products, according to a UBS survey that polled 400 Hong Kong investors with at least $1m of investible assets. For ESG non-adopters, 79% of them believe that sustainable investments are expensive.

“There are concerns that fees might actually be higher than traditional portfolios,” said Mario Knoepfel, head of sustainable investing advisory for Asia-Pacific at UBS Wealth Management, at a recent Hong Kong media briefing.

The survey suggested that product cost along with uncertainty about meaningful impact are some reasons for the contradiction between interest in sustainable-themed products and actual investments.

In Hong Kong, 85% of high net worth individuals say they are interested in sustainable investing, said Adrian Zuercher, head of asset allocation for Asia-Pacific.

But adoption rate remains low. Only 34% of Hong Kong HNWIs have sustainable investments in their portfolios, which is lower than the global average of 39%, Zuercher said.

 

Source: UBS Wealth Management

Investors may have valid reasons for being concerned about higher fees in sustainable investments, FE data shows.

Nearly 70% of mutual fund products that have “sustainable” in their names, as well as other known products that have been marketed as sustainable or ESG funds, have ongoing charges (OCFs) higher than the median of peer funds.

Equity ESG/sustainable mutual funds

Fixed income ESG/sustainable mutual funds

Note: *funds are available to both retail and professional investors in Hong Kong. The rest are only available to professional investors and are listed as being available to accredited investors in Singapore. Source: FE Analytics

 

ESG is no longer niche

Despite the evidence of higher fees in the chart above, including sustainable-themed UBS AM funds, Knoepfel said that sustainable investment products should not be expensive because ESG strategies are no longer niche products.

Globally, professionally-managed assets that follow any sustainability strategy – exclusion, ESG integration or impact investing – have reached $23trn, he said.

“It’s not a niche market anymore by a long shot.”

He said that on the wealth management side at UBS, the firm’s sustainable cross-asset portfolio has the same fees as its traditional portfolios.

Assets in the firm’s sustainable cross-asset portfolio, which in June had $100m in capital from Asia after it was launched in April, breached the $200m mark in mid-September, he added.

Besides fees, Knoepfel said that investors in Hong Kong have other concerns about ESG products, which 82% believe “aren’t focused on the values they care about”.

The top concern is not knowing exactly how impact is measured when investing in sustainable investments.

“Some global investors actually mentioned that they would rather create impact through donations or charity work than through making investments,” he said.

 

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